Real-World Economics Review

from Lars Syll When the great crash hit a decade ago, the public realised that the economics profession was clueless … After 10 years in the shadow of the crisis, the profession’s more open minds have recognised there is serious re-thinking to be done … But the truth is that most of the “reforms” have been about adding modules to the basic template, leaving the core of the old discipline essentially intact. My view is that this is insufficient, and treats the symptoms rather than the...

from David Ruccio The history of capitalism is actually a combination of two histories: it’s a history of employers attempting to hire workers and develop new technologies to make profits and expand the reach of capitalism; it’s also a history of workers banding together to improve wages and working conditions and imagine ways of moving beyond capitalism. The World Bank’s World Development Report, currently in draft form, comes down firmly on the side of employers and their historical...

from Lars Syll While the paternity of the theoretical apparatus underlying the new neoclassical synthesis in macro is contested, there is wide agreement that the methodological framework was largely architected by Robert Lucas … Bringing a representative agent meant foregoing the possibility to tackle inequality, redistribution and justice concerns. Was it deliberate? How much does this choice owe to tractability? What macroeconomists were chasing, in these years, was a renewed...

from Dean Baker While we all know that it is important for people to get a good education if they want to do well in today’s economy, it remains the case that who you know matters much more than what you know. Harvard has taught us this lesson well with the management of its endowment in recent years. Businessweek reported that the returns on Harvard’s endowment over the last decade averaged just 4.4 percent annually. This performance trailed both stock index returns and the returns...

Source: https://ftalphaville.ft.com/2018/01/04/2197227/eight-charts-on-inequality-in-the-us/

from Lars Syll Some time ago, Bank of England’s Andrew G Haldane and Benjamin Nelson presented a paper with the title Tails of the unexpected. The main message of the paper was that we should not let us be fooled by randomness: The normal distribution provides a beguilingly simple description of the world. Outcomes lie symmetrically around the mean, with a probability that steadily decays. It is well-known that repeated games of chance deliver random outcomes in line with this...

from Lars Syll A recent paper by Christiano, Eichenbaum and Trabandt (C.E.T.) on Dynamic Stochastic General Equilibrium Models (DSGEs) has generated quite a reaction in the blogosphere … Bradford Delongpoints out that new Keynesian models were constructed to show that old Keynesian and old Monetarist policy conclusions were relatively robust, and not blown out of the water by rational expectations … The DSGE framework was then constructed so that new Keynesians could talk to RBCites. None...